U.S. International Tax Strategy Navigator

An Interactive Guide to Maximizing Tax Benefits and Ensuring Compliance

Find Your Strategy

Select the topic most relevant to you to jump directly to the information you need.

🌍

I work overseas.

Find the optimal choice between the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).

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I have foreign financial accounts.

Clearly understand the differences and filing requirements for FBAR and Form 8938 (FATCA).

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I own a foreign corporation/partnership.

Check the complex rules and risks of Form 5471 and Form 8865.

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I received a gift from abroad.

Learn about the significant penalties and reporting requirements for Form 3520.

Core Strategy: FEIE (Form 2555) vs. FTC (Form 1116)

These are the two main methods to avoid double taxation on foreign earned income. The optimal choice depends on your personal situation, such as your host country's tax rate, whether you have children, and your retirement plans. Use the tool below to predict which method might be more beneficial for you.

My Situation Analyzer

Your host country's income tax rate? Low (0-15%) Medium (15-30%) High (30% or more)

Additional Considerations

Have children under 17? (Child Tax Credit) Plan to contribute to an IRA?

FEIE vs. FTC: Potential Benefit Comparison (2025 Basis)

The chart is a simplified illustration. Actual tax benefits vary based on individual income and circumstances.

Basic Asset Reporting: FBAR (FinCEN 114) vs. Form 8938 (FATCA)

These two regimes are the pillars of foreign asset reporting, but they have critical differences in jurisdiction, purpose, thresholds, and reportable assets. Filing one does not excuse you from filing the other, and it's common to have to file both. Use the diagram below to clarify the differences.

FBAR
(FinCEN Form 114)

Purpose: Prevent Financial Crimes

Administered by the Treasury (FinCEN) to track money laundering.

& &

Form 8938
(FATCA)

Purpose: Prevent Tax Evasion

Administered by the IRS to track undeclared foreign income.

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Filing Threshold

FBAR

Aggregate of all accounts exceeds $10,000

Form 8938

Exceeds $50,000 to $600,000 depending on status/residency

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Key Reporting Assets

FBAR

• Foreign financial "accounts"
• Requires reporting for financial interest OR signature authority

Form 8938

• Specified foreign financial "assets"
• Includes non-account assets like foreign stocks, funds, partnership interests
• Excludes accounts where you only have signature authority

Advanced Asset Reporting: Corps, Partnerships, Trusts & Gifts

If you hold complex assets abroad, additional informational reporting obligations arise. These forms are notoriously complex, and failure to comply can result in substantial, percentage-based penalties.

Form 5471: Information Return of U.S. Persons With Respect to Certain Foreign Corporations

U.S. shareholders who own 10% or more of a foreign corporation or control it must file this complex form. It's a key tool for the IRS to prevent deferral of foreign income.

⚠️ Key Risk Factors

• Constructive Ownership: You can have a filing obligation because of stock owned by family members, even if you own no stock directly.
• Subpart F / GILTI Income: You may be taxed on the corporation's income even if you receive no dividends.
• Substantial Penalties: Beyond the base $10,000 penalty, your Foreign Tax Credits can be reduced by 10%.
• Indefinite Statute of Limitations: Failure to file can keep the statute of limitations open forever for your entire tax return.

Form 8865: Return of U.S. Persons With Respect to Certain Foreign Partnerships

Required for U.S. partners who control a foreign partnership, own a 10% or greater interest, or contribute significant property.

⚠️ Key Risk Factors

• Property Contributions: Failure to report a contribution of property valued at over $100,000 can result in a penalty of 10% of the property's value.
• Control Requirement: Owning more than 50% of the partnership triggers the most complex filing category (Category 1).

Form 3520: Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

Filed for transactions with foreign trusts or for receiving foreign gifts over $100,000 from non-resident aliens. Penalties are notoriously severe.

🚨 Penalty Risk Simulator

See for yourself the potential penalty for non-compliance.

Max Potential Penalty

$0

Note: Penalty can be up to 35% of the gross value of property transferred/distributed, or 25% of the gross value of gifts. Calculation uses 35% as a reference.

Understanding Tax Treaties: The Saving Clause Pitfall

While tax treaties are vital tools to prevent double taxation, U.S. citizens face a critical limitation: the "Saving Clause." This clause states that the U.S. "saves" its right to tax its citizens on their worldwide income as if the treaty didn't exist. Therefore, treaty benefits for U.S. citizens only apply if they fall under an "exception" to this clause.

Benefits 'Nullified' by the Saving Clause (Saved)

This applies to most treaty articles. For example, even if a treaty says private pensions are only taxable in the country of residence, the saving clause allows the U.S. to still tax its citizen's pension. Double taxation must be resolved via the FTC.

Benefits 'Preserved' as Exceptions (Excepted)

This is where U.S. citizens find real treaty benefits. What's excepted varies by treaty, but generally includes:

• Social Security payments
• Government service pensions
• Specific articles for students and teachers

Disclaimer

The information provided on this website is for general educational purposes only and does not constitute legal or tax advice. Please consult with a qualified tax professional for advice tailored to your individual situation.